The Debt Management Office (DMO) has projected an increase in Nigeria’s total public debt before the end of this year and 2023.
It predicated the push on the growth in real Gross Domestic Product (GDP), the prevailing interest and exchange rates.
The projection is contained on Debt Sustainability Analysis (DSA) for 2021 released yesterday by the DMO.
The DSA recommended the strengthening and continued implementation of the Strategic Revenue Growth Initiatives to shore up government earnings in order to reduce financing pressures and expand the fiscal space.
The DSA also advised government to effectively implement the Petroleum Industry Act (PIA), 2021 which has been designed to attract investment in the oil and gas sector.
On the challenges of growing public debt, the DSA identified “Standard macro-fiscal shocks are primary balance, real GDP growth, real interest and exchange rates.
The DMO specifically projected that Nigeria’s debt to GDP will grow to 27 percent in 2023. The debt to GDP will grow as a result of what the DMO predicted to be “increasing Gross Financing Needs”.
According to the analysis, “the Primary Balance Shock showed a similar trend with an increase of Total Public Debt-to-GDP ratio to 27.0 percent in 2023 compared to 23.6 per cent in the Baseline, reflecting the impact of increasing Gross Financing Needs”.
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The DSA noted: “Under the real GDP Growth Shock in which the GDP is lowered than the baseline by one percentage point on the average in 2021 and 2022, the total public debt-to-GDP ratio rose to 26.1 per cent in 2023 compared to 25.5 per cent in the Baseline, but declined to 23.9 per cent in 2026 compared to 23.6 per cent in the baseline.
“The primary balance is defined as the difference between government revenue and non-interest expenditure (i.e. expenditure minus payment on interest and principal).
“The real interest rate shock with an increase in the interest rate by 200 basis points over the projection period will increase the debt service-to-revenue ratio to 29.3 and 32.1 per cent in 2022 and 2023, respectively compared to 28.7 and 31.5 per cent in the baseline.
“The real exchange rate shock with depreciating the naira exchange rate to the United States (U.S.) dollars by 50 per cent, the maximum historical movement observed over the past 10 years, will increase the total public debt-to-GDP ratio to 30.9 and 30.5 per cent in 2022 and 2023, respectively, compared to 26.1 and 25.8 per cent in the baseline.”
According to the analysis, 70.48 per cent of Nigeria’s total public debt stock as at December 31, 2020 was market-based debt, which comprised domestic debt with a share of 55.42 per cent and external debt accounting for 15.06 per cent.
“Of the external debt portion, Eurobond accounted for 33.49 per cent in 2020. Furthermore, Nigeria increased its visibility in the International Capital Market (ICM) with the issuance of $4.0 billion Eurobonds in three tranches of 6.25% $1.25 billion (7-year), 7.35% $1.5 billion (12-year) and 8.25% $1.25 billion (30-year) in 2021
“These developments give further justifications for the adoption of MAC-DSA Framework.”
The 2021 Market Access Country-Debt Sustainability Analysis (MAC-DSA) was conducted by the DMO from November 2-11, 2021 in conjunction with other stakeholders, namely: the Federal Ministry of Finance, Budget and National Planning (FMFBNP), Central Bank of Nigeria (CBN), Budget Office of the Federation (BOF), National Bureau of Statistics (NBS), and the Office of the Accountant-General of the Federation (OAGF).
The World Bank provided technical assistance.